Meals and refreshments (non-travel status): allowability issues for sponsored projects
What situations are considered to be entertainment or social in nature vs. work-related (allowable vs. unallowable)?
Federal guidance indicates that entertainment costs are unallowable. OMB Circular A-21 states that costs of entertainment, including amusement, diversion, and social activities and any costs directly associated with such costs (such as tickets to shows, or sports events, MEALS, lodging rentals, transportation and gratuities) are unallowable. Based on this, some institutions (and auditors!) view any meals outside of travel as entertainment. Federal rules do restrict when meals and refreshments are allowable, but they do not indicate that they are always considered to be entertainment and therefore unallowable. Each case should be considered individually, but a few examples here may be of help:
- One example often cited is a GAO (General Accounting Office) finding that involved a faculty member buying pizza for graduate students working late at night on a federal project. While this was a very nice gesture, the cost was deemed unallowable because the pizza was not necessary for performance of the project. In other words, serving pizza was viewed as a social event (a pizza party!), not necessary for the work being done.
- A hospitality suite is made available to attendees of an allowable conference. Hospitality suites by nature indicate a social event and the related costs would therefore not be allowable.
- Receptions, even when directly associated with a work-related event, such as a training session or conference, are considered unallowable because the primary purpose of the reception is social.
- Deciding to go to a meal together to discuss business with no need for continuity of a meeting or conference is viewed as primarily social in nature and unallowable.
- Within the context of meetings or conferences,refreshments served at breaks, working dinners and working lunches ARE typically allowable. An agenda indicating such a schedule should be available as documentation of the nature of the meals. Attaching a copy of the agenda to related payment documents is highly recommended.
Are meals and refreshments allowable as long as the event is work-related?
A review of the guidance offered by several federal agencies (NSF, NIH, USDA) and OMB Circular A-21 revealed that the common phrase used to determine allowability was that the “meals or refreshments are integral to a work-related event”. This phrase is frequently subject to misinterpretation by project personnel. It does not say that if an event is integral to a project, food is allowable; it says food must be integral to the allowable event. For example, food is typically not integral to a two-hour mid-morning meeting, even though the meeting is work-related, integral for the project’s completion, and included in the project budget. Additionally, scheduling a meeting at a mealtime does not automatically make a meal integral to the event. Federal guidance indicates that deciding to go to breakfast, lunch, or dinner together when no need exists for continuity of a meeting is considered to be entertainment and is unallowable. If mealtime meetings must be scheduled, be sure that there are other well-documented reasons for the having the meeting at that time of day.
Other key phrases found in various sources of guidance were:
- functions must be considered mandatory for attendees to receive full benefit of participation
- as part of a conference, working meals where business is transacted are allowable
- it is allowable to provide meals or refreshments that maintain the continuity of the meeting and to do otherwise would impose arduous conditions on the meeting participants
If meals or refreshments are deemed to be allowable, are there any restrictions on the costs that can be included?
- Alcoholic beverages are deemed unallowable. This is stated clearly in OMB Circular A-21 and repeated in other federal agency grant management guidance. The State of Kansas does not allow this cost either.
- General tests of allowability for any cost are set forth in OMB Circular A-21. These tests indicate that costs must be both allocable and reasonable. Allocable means in part that the cost is necessary to carry out the work of the sponsored agreement. Reasonable is defined, in part, as reflecting the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made. In the context of meals and refreshments, this means nothing that appears to be extravagant. Again, documentation is probably the key. Having a meal at a country club or other seemingly high cost location, for example, might prompt questions from an auditor. If the meal cost per person is reasonable and comparable to other conference locations in the area, then the reasonableness test would most likely be met.
If meals and refreshments as a part of meetings or conferences are included in the approved budget, aren’t they automatically allowable?
While including them in the budget is a big help in establishing allowability, the actual circumstances still have to fit within the guidelines described above, or any more restrictive guidelines indicated by a specific sponsor. The actual costs still must be allocable, reasonable, integral to a work-related event, etc. Some years ago, during a federal audit at KSU, meals and refreshments at a conference were disallowed even though they were clearly included in the project’s approved budget and met the tests described above. One of the arguments made by the auditor was that continuity of the meeting was not reason enough to include lunch as part of the conference. Because there was no speaker at the lunch, it was not deemed as necessary or integral to the event. Though I think this was a rather extreme view of the situation, the point is that if an auditor wants to find something to disallow, food costs often serve as a big red flag for them. In such cases, the only defense is complete documentation and absolute confidence that your food costs meet all the tests indicated above. You may still lose the fight, but should go into it as prepared as possible.
What if I charge conference or meeting participants for the food?
Meals or refreshments are allowable if the participants pay a registration fee for the conference that covers the food costs. If the conference or event is related to a federally funded award, then the fee collected constitutes program income and must be separately accounted for. This is not a difficult process and SPA can establish the separate account when the award account is established.
Can I charge meals to grants when recruiting and interviewing grant personnel? What about a meal for a professor from another institution who is visiting campus to conduct work on the grant?
- Interview situations:
The meal of the interviewee is typically allowable, but meals of others in attendance are not normally allowable on the grant or from state funds.
- Visiting faculty:
Normally, in this situation, the visiting faculty member is in travel status and will be reimbursed for meal costs through a travel per diem by one or the other of the institutions. If however, a KSU faculty member wishes to pay for a meal they have together during the visit, only the visiting faculty member’s meal is allowable (similar to the interview situation described above). This meal, of course, should be deducted from any travel status meal per diem the visiting faculty is to be reimbursed for.